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MANUAL 



OF REFERENCES AND EXERCISES 
IN ECONOMICS 



Copyright, 1917, by 
Thb Century Co. 



MANUAL 

OF REFERENCES AND EXERCISES 
IN ECONOMICS 



FOR USE WITH 

VOLUME I. ECONOMIC PRINCIPLES 



BY 



FRANK A. FETTER, Ph.D., LL.D. 

Professor op Economics, Princeton University 




NEW YORK 

THE CENTURY CO. 

1916 






Copyright, 1916, by 
The Century Co. 



'1 



FOREWORD 

The literature of economics is so extensive that a complete bibliography 
of some single chapters of a general text would fill a book. Many of the 
books cited below on special topics contain, elaborate special bibliog- 
raphies. General texts in economies are, with rare exceptions, not in- 
cluded here; the student can conveniently consult them on any topic 
by means of the index with which each of them is provided. Large use 
has been made, however, of the several volumes of selected readings in 
economics which have appeared within the past few years and which now 
are to be found in most college libraries. These are cited under brief 
titles as follows: 

Materials, for Materials for the study of elementary economics, by mem- 
bers of the department of political economy of the University of Chi- 
cago, 1913. 
Readings, Bullock, for Selected readings in economics, C. J. Bullock 

(ed.), 1907. 
Readings, Hamilton, for Readings in current economic problems, W. H. 

Hamilton (ed.), 1914. 
Source Book, for Source book in Economics, F. A. Fetter (ed.), 1912. 

It is more than questionable whether the student of an elementary 
text should be required to read extensively outside in the more or less 
controversial literature of the subject. This is especially true of the 
field of the principles, covered in Volume I, where careful drill in defini- 
tion and clear thinking are more to be sought than voluminous reading. 
Accordingly, no attempt has been made to cite the many writings that 
have contributed to the development of economic doctrine in its details 
in the last half century. The names of the authors and of their writings 
are to be sought by the more advanced student of theory in the 
voluminous special literature of the subject. 

Where the conception developed in the text and the grouping of ma- 
terials are along unconventional lines, the references in some cases repre- 
sent a somewhat different point of view from that of the text, but are 
valuable for their suggestiveness. In other cases preference has been 
given to concrete examples embodying the principles presented. 

The standard encyclopedias such as the American, the Britannica, 
the International, Johnson, etc., give large and increasing space to 

V 



vl K(tUK\\(ii;i) 

economic questions. Tlu- following' an- llic chief special encyclopedias 
in this field: 

Blias, Encyclopedia of social reform (new ed., 1008). (A good popu- 
lar hnndhook for American readers.) 
Conrad, J. (ed.), llandwiirterbuch dcr Staatswissenschaften (3d cd. 
in 7 vols.. 1!)0!)). (The larp-st and best, especially for European 
subjects.) 
Elster. U, \Vr.rterl)Ueh der W.lkswirtschaft. 2 vols. (2d ed., 189G). 
halor, .1. .1., Cyclopedia of political science and political i-conomy, 3 vols. 
(Chicago, 1H82). (Many ^ood articles. Iiut now niiicli out of date.) 
Palgrave, K. H. I. (ed.), Dictionary of political economy, 2 vols. (1894- 
1899). (Good; English in point of view, with some American con- 
tributions.) 
Say, L. (ed.), Nouveau dictionnaire d'^conomie politique. 2 vols. (Paris, 

1801-2). 
Scliiinberg, U. (ed.), Ilandhuch der pnlitischen Occonomic, 3 vols. (4th 
ed., 1898). (A systematic collection of able monographs, but not 
alphabetically arranged. ) 

The exercises and questions here given are not intended merely to 
provide a quiz-list to test the student's memory on the reading. Their 
purpose is to stimulate the student's interest, quicken his observation, 
and to clarify his understanding of the principles by giving some drill in 
their use. They may helpfully be assigned in advance of the recitation, 
or, in other cases, used as a review. Tlie present list contains only a 
part of the widely used questions given in tJie appendix ot tlie author's 
"Principles of Economics" (1904, amplilied in the third edition, 1911), 
the sources of which were there indicated. Many other questions and 
exercises that have been used in class work and in examinations in 
Princeton University and elsewhere have been added. Preference has 
been given, in this selection, to exercises of an arithmetic nature. 

The following rules regarding written work have been found useful: 

1. The student should have a slide rule, a common ruler, a tri- 
angular scale, one bottle eacli of black, blue, red and green India ink, 
a ruling pen, a compass, a protractor, ordinary pen and ink, unruled 
paper size 8 X 10%, cross-ruled paper and outline maps of the U. S. 

2. All work should be finished with pen and ink, and the diagrams 
with India ink and a ruling pen. 

3. Construct diagrams whenever it is thus possible to illustrate better 
the statistical data. 

4. Use the line diagram for statistical comparisons extending over 
a series of time intervals, and the column, square, rectan<Tle circle 
or other device for comparisons of synchronous data. 



FOREWORD vii 

5. Use the unruled paper for all exercises not requiring the simple 
line diagram, and cross-ruled paper for the latter. 

6. References to the sources should always be given in full. 

7. Each statistical table should be complete on a separate sheet if 
possible. 

8. Enclose completed work in a manila cover. 

Particular acknowledgment is made to my colleagues, Professors 
W. M. Adriance and D. A. McCabe, who originated a number of the 
most interesting and useful of the exercises, and to Dr. Stanley E. 
Howard, instructor in economics in Princeton University, for highly 
valued collaboration in the preparation of the copy in its present form. 

The author will gratefully receive from teachers suggestions as to 
additional references and exercises that might desirably be included 
in a later edition. 

Princeton, September, 1916. F. A. F. 



MANUAL 

OF REFERENCES AND EXERCISES 
IN ECONOMICS 



MANUAL 

OF REFERENCES AND EXERCISES 
IN ECONOMICS 

CHAPTER 1 

PURPOSE AND NATURE OF ECONOMICS 

References. 

Cossa, Luigi, An introduction to the study of political economy, 1893. 
Keynes, J. M., The scope and method of economics. 1890 (2d ed. 

1897). 
Falgrave, Dictionary. Articles on " Economic science " and " Method 
of political economy." 

Questions. 

1. Has political economy anything to do with woman suffrage, the 
liquor problem, a republican vs. a monarchical form of government, 
the silver question? 

2. Is economics a study of things or of men? 

3. Shall a piece of coal be studied in geology, botany, physics, 
chemistry, or economics? 

4. Do you expect to acquire wealth more easily as a result of the 
study of economics? 

5. Of what practical use do you think economics is? 

6. Is economics necessary to the understanding of the business world, 
or vice versa? 

7. How wide a knowledge would a complete understanding of indus- 
trial society require? 

8. Did the discovery of America make the study of economics more 
important? 

9. In Avhat respect are the laws of politica^l economy like the laws 
of the physical sciences; and in what respect, other than their subject 
matter, do the laws of political economy differ from the laws of the 
physical sciences? 

3 



4 MANUAL OF KEFEKEXCES 

10. Wliat well known method of discovery commonly used in the 
physical sciences is incapable of employment in economics, and why? 



CHAPTER 2 

CHOICE AND VALUE 

Rkferknces. 

Carver, T. N., llie place of the tlieory of value in economics. Q. J. E., 

17: 185-187. 1902-1003. 
Fetter, F. A., Tlie fundamental conceptions and nictliods of economics. 

International Congress of Arts and Sciences. 1004. Vol. 7, pp. 

7-20. 
Smart, IT'. T., An introduction to the tlieory of value. ISOl (2d ed. 

1910). (A summary of "the Austrian doctrine," of importance 

in the history of economic thought, but not in accord with our 

treatment in all its details of terminology and analysis. Chs. 

I-III.) 
Sotcrce Book, 275-283. 

Questions. 

1. If you found $10 to-day on the street, what would you do with it? 

2. What would be the chief differences between your use of money 
now and at the age of five or the age of twelve? 

3. Name Crusoe's wants in order of their importance. 

4. Why did Crusoe work at all? 

5. When Crusoe began to work at one thing, why did he ever stop 
to work at another? 

6. Are the desires of a savage more easily satisfied than those of 
civilized men? Why? 

7. What is it to be economical of money? 

8. Have any goods intrinsic value? Prove your answer by two 
examples. 



CHAPTER 3 
GOODS AND PSYCHIC INCOME 
References. 

Keasbcy, L. .U., Prestige value. Q. J. E., 17: 4.56-475. 1002-1003. 
McDougal, Social psychology, 1008, pp. 1-18. 

Stuart, II. W., The hedonistic interpretation of subjective value J P 
E., 4: 64-84. 1895-189ef. 



AND EXERCISES IN ECONOMICS 5 

Questions. 

1. Is a book full of useful information an economic good? Is a head 
full of useful knowledge an economic good ? 

2. Is a ship at the bottom of the ocean, or gold in the mine, an 
economic good? 

3. Are services, music, a theatrical performance, a gambler's pack 
of cards, economic goods? 

4. How many motives led you to come to college? 

5. If you ever worked for wages, or a salary, was that the only 
motive? What else? 

6. If you could, would you do nothing always? Why? 

7. Do men work better under threat or when their pride is ap- 
pealed to? 

8. Is pride as powerful a motive as greed, in economic action? 

9. Give examples of personal services that are most immediately 
expressed as gratifications. 

10. It was once usual to say that the teacher did not produce goods 
and the ditch-digger did; give reasons for and against such a state- 
ment. 

11. A spends a certain sum for food and clothing; B buys liquor, 
becomes intoxicated, and causes a railroad wreck; C buys a grand opera 
ticket; D contributes to a fund for the provision of free lectures on 
hygiene in a congested section of a large city. State whether the in- 
dividual in each case is actuated by economic motives. State clearly 
the reasons for your opinion in each case. 

12. Do people actually expend their incomes so as to get the maxi- 
mum benefit judged by a standard they would admit to be morally 
sound ? 



CHAPTER 4 
PRINCIPLES OF EVALUATION 

References. 

Smart, chs. IV-IX. (See comment under ch. II.) 

Questions. 

1. Do you ever take account of a difference of five cents in deciding 
whether to purchase? 

2. If you never eat corn-bread, will the failure of the corn-crop 
affect your grocery bill? 

3. What are complementary goods? Give some illustrations. 

4. Is the last bait worth more when tht fish are biting well? 



(] MANUAL OK KKKKRENCES 

5. Civo example's of ca8i>s wliori- part of a stock of goods is wortli 
more than the whole. 

6. A, B, C, and D represent four different sets of commodities. A 
stands for food, B for clothing, C for shelter, D for ornaments. The 
comnioilities exist in homogeneous increments. The first increment of A 
yields ten units of gratification; tliat of B, eight units; that of C, six; 
and that of D, three. Successive increments of each commodity yield 
one unit less of gratification. If each separate desire could be com- 
pletely satisfied, how nuxny increments of A, B, C, and D would be 
consumed ? 

Illustrate fully, and from yuur illu.stration derive a law of the 
choice of goods. 

7. On a certain day a farmer comes to the village with a single bushel 
of new potatoes (all that have been brought that day to market), for 
which various persons are willing to pay the following (maximum 
buyer's) prices: A, $1.00; B, $.08; C, $.f)G; D, $.n5. If the seller will 
not sell less than the whole bushel, what is the highest price he can 
get? How can he get the maximum possible price, and how may he be 
obliged to take less? 

8. In a horse market there is at a certain time but one horse that 
meets the wishes of five prospective purcliasers, who have in mind as 
subjective maximimi buyer's valuations: A, $155; B, $148; C, $147; 
D, $146; E, $145. Tlie seller, V, has in mind $135 as his subjective 
minimum valuation. In an open auction who will tlie purchaser be, and 
why ? 

9. John has twenty apples which he wishes to trade, and he has 
in mind as the maximum number he will give for other articles as 
follows: 7 apples for m, 5 for n, 4 for o, 2 for p, 6 for m' (a second 
unit of m), 3 for n', 1 for q, 1 for p'. He finds that the ratios of ex- 
change prevailing on the market are as follows: m for 5 apples; n for 
4; o for 3; p for 2; q for 1. How will he divide his purchases and 
why? Diagram as far as possible. 



CHAPTER 5 
TRADE BY BARTER 

References. 

Fetter, F. A., The definition of price. A. E. Rev., 2: 783-813. 1912. 
Materials, 443-445. 
Readings, JiuUock, 387-399. 
i^ource Boole, .3-7, 8-14. 



AND EXERCISES IN ECONOMICS 7 

Questions. 

1. Why is trade profitable if it is fair? 

2. Do you buy what you most desire? 

3. What causes a demand for an additional supply of food? Of 
books? 

4. Give illustrations of the difference between desire and demand. 

5. Give examples of cases where supply is fixed, and demand varies. 
G. Explain the motives and the reasonableness of trade in the case 

of barter between two consumers and compare this with trade carried 
on by middlemen (merchants). Show what is the fundamental motive 
making for trade in each case. 



CHAPTER 6 

MONEY AND MARKETS 

References. 

Source Book, 34-47. 

Readings, Bullock, 325-332, on English fairs and markets. 

Questions. 

1. Explain the advantages gained through the use of money in mak- 
ing exchanges. Are the advantages of exchange mutual when money is 
employed ? 

2. Where one-sided competition exists (one seller and more than one 
buyer, for example) indicate the upper and lower limits of the price 
at which a commodity will sell. 

3. Show clearly the relation between the law of diminishing gratifi- 
cation and the law of demand in a market. 

4. How does the geographical extension of markets augment the sum 
total of goods produced? 

5. What effect on prices should be expected from an invention that 
makes possible the carrying of fresh meat from South America to 
England ? 

6. Describe the method of selling any product you know about. 
What is the market in which it is sold? 

7. Describe the cases of selling through one, two, or more, middlemen 
(Source Book) and show how this is a trade between producer and 
consumer. 

8. In a time of high excitement gold was sold for more at one 
side of the room than at the other side ; how account for this ? 

9. If A buys of B wheat at $1.15 per bushel for immediate delivery, 
and if A at the same time buys of C wheat of the same grade at $1.25 



8 MANUAL OF RKFEllENCES 

for delivery on January Ist next, wliat will determine whether A, B 
and C iu"e members of tiie same market? 

10. Ciive examples of, and reasons for, two prices in the same market. 

11. Does the boundary line between wholesale prices and retail prices 
coincide with the boundary line between competitive and non-com- 
petitive prices? Explain. 



CHAPTER 7 
PRINCIPLES OF PRICE 

Rei-^erences. 

Kemmerer, E. ^^., The liiggling of tlie market. Q. J. E., 17: 670-677. 

1002-1903. 
Materials, 376-380, 380-391 (Extracts from same source), 414-415. 
Readings, Bullock, 354—386. 
Smart, Chs. X, XI. 
Source Book, 15-25, 25-33 (Extracts from same source), 58-60. 

Questions. 

1. How are the valuations of goods by individuals in a regular 
market related to the prices prevailing in the market? Using the 
customary diagrams, explain carefully the meaning of the various points 
on the curves. 

2. Are market prices fixed by the marginal pair? 

3. Is the margin of advantage obtainable by a shrewd and selfish 
trader increased or lessened by an increase in the number of buyers 
and sellers of the commodity in which the trader and the others deal? 

4. Can a commodity change its value without changing its price? 
Can it change its price without changing its value? 

5. Would doubling all commodities affect their price? 

6. Give examples you have seen of a higher price of one thing caus- 
ing an increasing use of another. 

7. Do you think that store-keepers fix the price of the produce they 
buy of the farmers? If so, to what extent? 

8. Can brokers fix the price of grain on the market? How, and to 
what extent? 

9. " Now that the preserving season is nearly over there are an- 
nouncements of an approaching decline in the price of sugar. Coflee, 
however, has gone up a little more, and gives no present indications of a 
reverse movement, so that the breakfast problem is still a serious one. 
We might leam the English habit of drinking tea at breakfast, but 



AND EXERCISES IX ECONOMICS 9 

the exclusion of artificially colored tea has reduced the supplies of that 
commodity, and if the demand should be greatly stimulated by the 
change from coffee a marked advance in price might be the result." 
Enumerate and classify the economic motives and forces that are 
implied in this editorial. 

10. The market price of platinum about doubled in a certain period. A 
newspaper reported as follows : " Platinum is replacing gold and silver 
to some extent in the manufacture of neck chains, watch chains, and 
other ornaments. The higher the price of platinum gets, said a manu- 
facturer yesterday, the wider grows the demand for it in replacing 
gold and silver. 

" Prospectors in a number of states, in South America and in 
Canada, in all of which platinum has been found in small quantities, 
are searching for deposits more eagerly than ever before." 

At any point of time in this period during which the price has been 
increasing how would the price for platinum, if the price were $30 
per ounce, compare with the demand at the same time if the price were 
$25 per ounce? 

Would the supply of platiniun forthcoming for sale at $30 per ounce 
be greater or less than the supply of platinum forthcoming for sale at 
the same point of time at $25 per ounce? 

11. In a market the would-be buyers will pay respectively the prices 
indicated (or less) for one unit of X: 10, 9, 8, 7, 5, 4, 3; the would-be 
sellers will take respectively the prices indicated (or more) for one 
unit: 1, 2, 3, 4, 5, 6, 7. Diagram the buyers' and sellers' curves. 
What will the price be? Which bidders will be included and which 
excluded ? 

12. A, B, C, and D are sellers of commodity X. Each has for sale 10 
homogeneous units of the commodity. A can sell at the rate of $2.00 
per unit; he is anxious to get more but he cannot accept less. 

In like manner, B can sell for $4.00, C for $6.00, D for $8.00. 

E, F. G, and H are buyers of the above commodity, and each wishes 
to buy 10 units. E can pay $10.00 per unit; he is anxious to pay less 
but he cannot pay more. In like manner F can pay $8.00, G $6.00, 
and H but $4.00. 

If these buyers and sellers meet in a market, what will be the market 
price of commodity X? 

13. At a certain time in the " market " for a certain commodity 
A is willing to buy one unit of the commodity at $1.20; two units 
at $1.15 each; three units at $1.10; four units at $1.05; or five units at 
$1.00. B is willing to buy one unit at $1.15; two at $1.10; three at 
$1.05; or four at $1.00. C is willing to buy one unit at $1.05, or two 



10 MANUAL OF HKFEIIKNCES 

at $1.00. W ia willing to sell two units at $.95; three units at $1.00; 
four units at $1.05; five units at $1.10; or six units at $1.15. X is 
willing to sell one unit at $.95; two at $1.00; three at $1.05; four at 
$1.10; or live at $1.15. Y is willing to sell one unit at $1.05; two at 
$1.10; or tiiree at $1.15. Z is willing to sell one unit at $1.15. 

Find the market price which will result under these conditions, and 
illustrate by a diagram drawn to scale. E.\plain why this must be the 
price under these conditions. 

14. In a given market at a given time 

A is willing to buy 800 bushels of wheat at 86^' a bu. 

B is willing to buy 1,000 bushels of wheat at 83^ a bu. 

C is willing to buy 1,200 bushels of wheat at 81^ a bu. 

D is willing to buy 1,500 bushels of wheat at 79^ a bu. 

X is willing to sell 1,000 bushels of wheat at 7G^ a bu. 

Y is willing to sell 2,000 bushels of wheat at 80^' a bu. 

Z is willing to sell 3,000 bushels of wheat at 82<f: a bu. 

W is willing to sell 1,500 bushels of wheat at 86^ a bu. 
Where would the market price be fixed under the above circum- 
stances? Show why. Who would be the marginal pair? Diagram. 
Discuss the question of value and price. 

15. Suppose that the supply of wheat in the New York market is 
200 million bushels when the price is 80 cents per bushel, while the 
demand at that price is 1400 million bushels; and suppose that the 
supply increases by 5 million bushels while the demand decreases by 
7 million bushels for every increase in price of ^4 cent per bushel. What 
market price will be evolved, and how many bushels will be bought and 
sold? 

16. In a certain wheat market 20 million bushels of No. 2 wheat are 
demanded at $1.10 per bushel, while the amount offered at that price 
is 25 million busliels. Supply of. demand for, and price of. No. 2 wiieat 
are so related that each and every variation of % cent in price per 
bushel is accompanied by a variation of 200,000 bushels in the demand 
and a variation of 300,000 bushels in the supply forthcoming. 

What market price will be established in the above market and 
how many bushels of wheat will be exchanged? 

Is there a marginal pair in the above market? 

Suppose the relation between supply of, demand for, arid price of, 
wheat remains unchanged, and suppose three million bushels of No. 2 
wheat is brought into this market by dealers who, if forced to do so, 
will accept as little as 70 cents per bushel for their wheat. What 
change, if any, will this new quantity of wheat effect in the supply 
offered, the demand for, and the price of, No. 2 wheat? 



AND EXERCISES IN ECONOMICS 11 

17. A comes into a certain market willing to buy seven units of a 
commodity if the price is 85c, six units if the price is 90c, four units 
if the price is 95c, or three units if the price is $1.00. B comes willing 
to buy seven units if the price is 85c, five units if the price is 90c, three 
units if the price is 95c; or two units if the price is $1.00. C comes 
willing to buy two units if the price is 90c, or one unit if the price is 
95c. X comes willing to sell one unit if the price is 95e, or two units 
if the price is $}.00. Y comes willing to sell one unit if the price is 
85c, three units if the price is 90c, five units if the price is 95c, or six 
units if the price is $1.00. 'Z conies willing to sell one unit if the 
price is 90e, two units if the price is 95c, or three units if the price 
is $1.00. 

If, before any exchange had taken place, a new buyer had come into 
this market willing to take four units at 85c, three units at 90c, two 
units at 95c, or one unit at $1.00, what would have been the resulting 
difference in the market-price and in the number of units exchanged? 

Under such circumstances what will the market price be? 

Diagram the buyers' and sellers' curves on the plan of the diagram in 
the text. 

Explain just why the price cannot be more or less. 

18. The market for a certain commodity on a given day is subject to 
the following conditions. At 7c per pound 60,000 lbs. will be offered, 
and 135,000 lbs. will be demanded. With a change in price of Ic per 
lb. supply will change to the amount of 20,000 lbs., and demand will 
change to the amount of 40,000 lbs. Changes in price of fractional 
parts of a cent result in proportional changes in both supply and de- 
mand. Find what the market price would be, and explain why the 
market price must be at just that figure and no other under the given 
conditions. Make a diagram of the supply and demand curves. 

19. The N. Y. cotton market on a given day is subject to the follow- 
ing conditions. At 8c per pound 800,000 lbs. will be offered and 1,700,- 
000 lbs. will be demanded. With a change in price of Ic per lb. supply 
will change to the amount of 200,000 lbs. and demand will change to 
the amount of 600,000 lbs. Changes in price of fractional parts 
of a cent result in proportional changes in supply and in demand. 
Find what the market would be and explain why the market price must 
be at just that figure and no other under the given conditions. Make 
a diagram of the supply and demand curves. 

20. Before any exchange takes place in the market described in the 
preceding question, and while the subjective valuations of all the would- 
be buyers and sellers already there remain unchanged, suppose that a 
new supply of 300,000 pounds of cotton is thrown on the market by 



12 MANUAL OF REFERENCES 

sellers \villin<,' to take as little as 8% cents per pound, while an addi- 
tional purchaser bids for 100,000 pounds at not more than 9Vi cents. 
What will be the market price under these conditions, and why? 

21. In a perfectly competitive market holders of wheat are ready to 
offer in exchange for rice an aggregate of 

1000 bu. of wheat when each bu. of wheat will bring 2 bu. of rice. 

950 bu. of wlicat when each bu. of wlioat will bring 1.8 bu. of rice. 

925 bu. of wheat when each bu. of wheat will bring 1.7 bu. of rice. 

900 bu. of wheat when each bu. of wheat will bring 1.6 bu. of rice. 

8(50 bu. of wheat when each bu. of wheat will bring 1.5 bu. of rice. 

840 bu. of wheat when each bu. of wheat will bring 1.4 bu. of rice. 

820 bu. of wheat when each bu. of wheat will bring 1.3 bu. of rice. 

800 bu. of wheat when each bu. of wheat will bring 1.2 bu. of rice. 
The holders of rice (if the market afforded no better terms) would 
take an aggregate of 800 bu. of wheat, if each bu. of wheat could be 
had for 3i^ bu. of rice; and at a ratio of exchange just twice as favor- 
able to the rice holders, the rice holders would be readj' to take an 
aggregate of wheat larger by % than the aggregate of wheat the rice 
holders (if the market afforded no better terms) would take at the 
less favorable ratio. 

Determine the market price of rice per bushel. 

22. A, B, C, and D have wlieat, and will exchange it for cloth. 

If 1 bu. fetches 1 yd., A, B, C will trade, respectively, 0, 0, and GO bu. 
If 1 bu. fetches 2 yd., A, B, C will trade, respectively, 20, 10, and 70 bu. 
If 1 bu. fetches 3 jdv. A, B, C will trade, respectivelj', 45, 20, and 75 bu. 
If I bu. fetches 4 yd.. A, B, C will trade, respectively, 60, 30, and 80 bu. 
D has a hundred bushels which he must sell at any price (in cloth) 
that comes to prevail in the market. 

Tliose who offer cloth for wheat will in the aggregate offer 100 j'ards, 
if 4 yards fetch 1 bushel; 150 yards, if 3 yards fetch a bushel; 200 
yards, if 2 yards fetch 1 bushel; and 239 yards, if 4 yards fetch 1 bushel. 

With perfect competition among all traders determine the price that 
must prevail in the market ; and explain why that price must prevail. 

23. On the Berlin Stock Exchange bids and offers for a certain stock 
were received as follows on a given date: 

Bids for 15 shares @ 126M., for 20 shares @ 125M., for 30 shares 
@ 124M., for 55 shares @ 123M., for 80 shares @ 122M., for 105 
shares @ 121M. 

Offers for 5 shares @ 121M., of 15 shares @ 122M., of 20 shares 
@ 123M., of 25 shares @ 124M., of 45 shares @ 125M., of 80 shares 
@ 126M. 

Where should the price be fixed? Why? What would happen were 
it fixed above or below this point? 



AND EXERCISES IN ECONOMICS 13 

CHAPTER 8 

COMPETITION AND MONOPOLY 

As only the more elementary aspect of monopoly is treated in this 
chapter, the references to the subject will better be given later. This 
will be done partly in chapter 31, below, and more fully in connection 
with the trust problem in Volume II. 

Questions. 

1. Is there competition between the owner of good land and the 
owner of poor land? 

2. Are the tuition charges made by universities competitive prices? 

3. Has the owner of a poor gold-mine a monopoly? Has the owner 
of a rich mine a monopoly ? 

4. Does the ownership of land give a monopoly? Tlie ownership 
of a horse? 

5. In what sense is a street-railway a monopoly? 

6. In New York City, when the fare on the elevated roads was ten 
cents, the fare collected in a certain year were 115,109,591. The fare 
was reduced by legislative act to five cents, and the fares collected during 
the next year were 158,963,232. What economic law is illustrated by 
this statement? 

If a statute could effect a reduction of fifty per cent in the price 
of the average loaf, how would the subsequent change in the consump- 
tion of bread compare with the change above indicated in local railway 
traffic due to a similar reduction in price? 

7. In a certain market there are seven groups of competing sellers, 
A to G, and seven groups of competing buyera, H, J, K, L, M, N, and 0. 
Each group is composed of the same number of persons, and each offers 
and demands ten bales of cloth. The value of each bale ranges from 
$1.00 to A to $7.00 to G among the sellers, and from $9.00 to H to $3.00 
to O among the buyers. What will be the market price of bales of cloth 
in this market? Prove your answer. In what way or waj's could a 
monopoly of cloth be eff'ected in this market, and what would be the 
monopoly price? 

8. In a certain market the demand for a certain commodity at various 
prices is as follows: at 20 cents 400 units; at 25 cents 270 units; at 
30 cents 330 units; at 35 cents 300 units; at 40 cents 250 units; at 45 
cents 200 units; at 50 cents 170 units. 

At what figure would the price be fixed by a monopoly which is seek- 
ing to maximize its gross receipts? 

What will be the market price if conditions in this same market 



14 MANUAL OF REFERENCES 

are competitive and the amounts ofTored at the various prices are as 
follows: at 20 cents 100 units; at 25 cents 150 units; at 30 cents 225 
units; at* 35 cents 300 units; at 40 cents 350 units; at 45 cents 450 
units; and at 50 cents (iOO imits? Plot the two curves. 

9. A part of a statement issued by the Standard Oil Company runs 
as follows: ". . . the level of prices for refined oil to-day in the United 
States is lower than at any time during recent years. ... As a direct 
result of these prices the consumption of refined oil in this country is 
increasing. . . . (The company proposes to cut the prices for refined oil 
in foreign countries) to increase the world's consumption." 

State what economic law is implied in the above paragraph. 

Explain the psychological basis on whicli the law fundamentally rests. 



CHAPTER 9 

AGENTS FOR CHANGING STUFF AND FORM 

References. 

Bogart, E. L., Economic history of the United States. 1907 (2d ed. 

1912). Chs. XXII, XXIII, XXVII, XXVIII. 
VaUender, G. 8., Selections from tlie economic history of the United 

States, 1765-1860. 1909. Ch. IX. 
Copeland, M. T., The cotton manufacturing industry of the United 

States. 1912. Chs. IV, V. 
(These references and those of the next chapter give some concrete 

illustrations of the agents and processes treated in the text.) 

Questions. 

1. Are there different economic terms for hewn and unheAvn blocks of 
stone? What makes tlic difference? 

2. Give examples of changes of form that have affected the value of 
goods. 



CHAPTER 10 

AGENTS FOR EFFECTING CHANGES OF PLACE AND TIME 

Rb:ferences. 

Bogart, chs. XXIV, XXV. 
Callender, ch. VIII. 

Keadinfis, Bullock, 165-183, on localization and geograpliical distribu- 
tion of industries. 
Source Booh, 81-90. 



A^^D EXERCISES IN ECONOMICS 15 

Questions. 

1. Mention any cases you can think of where merely changing the 
place of things added to their value; or where the mere lapse of time 
added to the value of the thing. 

2. Are merchants producers of wealth, or are their profits merely 
subtracted from the wealth already produced? 

3. Does the railroad add to the value of the freight it carries? 
Why? 

4. Is there any causal relationship between commerce and manu- 
factures? If so, in what way? 

5. Give examples within your observation of improved productive 
processes increasing exchange; of the reverse. 



CHAPTER 11 

CONSUMPTION AND DURATION 

References. 

Materials, 175-178. 

Matheson, E., Depreciation of factories and their valuation. 1884. 

Palgrave, article on " Depreciation." 

Peters, A. U., The depreciation of farming land. Q. J. E., 4: 18-33. 

1890. 
Hource Book, 117-119. 

Questions. 

1. In what ways can a piece of iron be consumed, economically 
speaking? 

2. What methods are adopted to keep up the efficiency of facto- 
ries? 

3. Must a depreciation fund be set aside, in addition to a fund devoted 
to all possible repairs and upkeep in the case of 

( 1 ) . A lumber company. 
(2). A coal mining company. 
(3). A cotton milling company. 
Give reasons in each case. 

4. Explain carefully the ideas of depreciation and repair, and show 
to what economic problems described in the Source Book they apply. 

5. How does the allowance made by the Tariff Board for repairs 
and depreciation of cotton manufacturing machinery compare with that 
for repairs and depreciation of the buildings? What difficulties were 
encountered by the Board in attempting to ascertain the proper allow- 
ances for these purposes by an examination of the actual expenditures 



16 MANUAL OF REFERENCES 

for repairs and the aetual depreciation? How were the allowances made 
by the Hoard arrived at? See Source Book. 

6. A certain street railway company possessing a perpetual franchise, 
devoted enough of its gross earnings to upkeep so that its plant was 
maintained in perfect repair and was continually improved by the adop- 
tion of new types of machinery and equipment to replace the old. In 
addition the company set aside a depreciation fimd sufiicient to replace 
the entire plant at the end of twenty years. Because of the perpetual 
franchise, tiie street railway's right to continue doing business was un- 
questioned. Was the setting aside of a depreciation fund required by 
good business principles in this case? 

7. Criticize the statement that, in an economic sense, land is a " fixed 
stock for all time." 



CHAPTER 12 
THE PRINCIPLE OF PROPORTIONALITY 

References. 

Tlie problem discussed in this chapter is that of the best relation of 
different factors at a certain time, a "static" problem (as that 
term is explained in Chapter 32). It has, however, been discussed 
in the past in connection with, and under the same name as, the 
" dynamic " changes in the general productiveness of labor that 
go with a changing environment. The older writings, therefore, 
usually involve this confusion and are of value only to the special 
student of doctrine. Tlie most notable of the modern criticisms 
pointing out the existing confusion, was given by 

(Jommons, J. R., The distribution of wealth, 1893, pp. 116-159, on 
diminishing returns and rent. 

Questions. 

1. Is it possible to do twice the amount of business in any store- 
room by doubling the stock and the force of clerks? 

2. Is it possible to expand a university indefinitely by increasing 
the force of teachers and the equipment, without enlarging the build- 
ings? 

3. Why do men cultivate two acres instead of one? Where land is 
plentiful, Avhy do not men cultivate two acres instead of one? 

4. Are there any things, not free goods, that could be indefinitely 
increased without increasing difficulty? 

5. English farmers raise thirty-five bushels of wheat per acre, 
Americans perhaps fifteen; why this difference? 



AND EXERCISES IN ECONOlVnCS 17 

6. Why did people go to Dakota and Iowa when there was still room 
in New England? 

7. Why put up a twenty-story building? Why not build a fifty- 
story one? 

8. If money income is laid out in different lines so as to maximize 
the satisfaction derived from the total expenditure, how will the satis- 
faction derived from the dollar on the margin of the expenditure for 
food compare with the satisfaction derived from the dollar on the 
margin of the expenditure for fuel? Give reasons. 

9. Tliere is a factory in which 100 machines are operated by 250 
hands, and which turns out a product worth on the market $976,000. 
Would it or would it not be profitable to double the number of opera- 
tives and macliines in this factory? State clearly the economic law 
involved. 

10. Under what circumstances will the margin (extensive) of utiliza- 
tion of a given class of use-bearers be extended? Illustrate from two 
distinct occupations. 

11. When there exist indirect agents of different degrees of effective- 
ness for the production of the same commodity, what is the funda- 
mental cause which explains how the agents of inferior efficiency are 
employed at the same time as the agents of superior efficiency for the 
production of the commodity in question? 

12. When there are productive agents of different degrees of pro- 
ductiveness, and when it is physically possible to obtain from the better 
grades of productive agents as much per year as is now obtained by 
working both the better and poorer grades, to what economic law is it 
due that the poorer grades are utilized along with the better grades? 
Explain how the law in question renders this usage necessary. 



CHAPTER 13 
THE CONCEPT OF USANCE-VALUE 

" Usance-value," as a concept and as a technical term, is new in the 
text. The idea is treated in the older texts in part (only) in connection 
with what they call " economic rent," and with the " uses " of goods. 
The word " usance " is defined by Prof. Alfred Marshall in a meaning 
closely approaching ours, but was not further employed by him. In 
the following reference the idea was pretty fully suggested by a brilliant 
writer under the term (translated) "material services of goods" but 
he made no further application of the concept. 

Bohm-Bawerk, E. von, Capital and interest (Eng. trans. 1890), pp. 
219-227 on the true conception of the use of goods. 



18 MANUAL OF REFERENCES 

Questions. 

1. Give a list of material agents that are yielding non-material 
uses. 

2. It is usual to call the use of a house for business purposes a 
productive use, but its use as a residence an unproductive one. What 
reasons are there for and against this? 

3. Why should the use of a machine that never can be a direct cause 
of gratification, have a value that men will pay for? 

4. Give examples of wealth never becoming a direct cause of grati- 
fication, yet whose possession is greatly valued. 

5. How may the value of the uses of agents be reduced " independ- 
ently of their material condition"? Illustrate from actual happenings. 

6. Explain clearly the connection between the operation of the prin- 
ciple of proportionality and the values of the usances of the agents in the 
following cases: (a) If several acres of land of equal fertility and of 
equally favorable location are used in producing the same crop, (b) If 
a number of acres of unequal fertility are used in producing the same 
crop. 

7. Give reasons for attributing value in exchange to the waves of 
the ocean ; to a waterfall, a water-wheel, a loom, a piece of cloth, a dress 
made of the cloth. Show the connection between these things. 

8. How can the use of a flock of sheep be of value to one who must 
return them all to the owTier? 

9. Two machines of the same pattern are used in the same factory 
in the production of the same kind of goods. State briefly the circum- 
stances which may cause the value of the use of one of these machines 
to differ from that of the other. 

10. A farmer has several hundred acres of land of equal fertility and 
practically of equal accessibility. He devotes some of it each year to 
wheat, some to hay, and some to pasture. How does the usance of the 
marginal acre devoted to wheat compare with that of the marginal acre 
under hay and with that of the marginal acre given up to pasture? 
How would you arrive at the usance in each case? 

11. How does a new railroad affect the value of the land it passes 
through ? 

12. Mention any cases you may have seen where a greater value was 
imparted to land by a newly discovered use. 

13. A tunnel was made to drain a mine; the stock doubled in price. 
.Was it really the stock, the old mine, or the new hole in the mountain- 
side that had increased in value? 



AND EXERCISES IN ECONOMICS 19 



CHAPTER 14 

THE RENTING CONTRACT 

References. 
Allinson, E. P., and Penrose, Boise, Ground rents in Philadelphia. Q. 

J. E., 2: 297-313. 1888. 
Leslie, T. E. Cliffe, Land systems and industrial economy of Ireland, 

England and continental countries. 1870. 
Materials, 639. 

Mill, J. S., Principles of political economy. 1848. Bk. II, chs. VI-X. 
Source Book, 61-67, 68-74. 

Questions. 

1. What things beside land are rented? 

2. What is the form of contract used in tlie renting of farms, business 
buildings, and residences, in the community Avhere you live? 

3. Wliat are the difficulties in determining tenants' improvements? 

4. What is stumpage? Does it differ from rent? 

5. What do you know about the methods of renting mines? 

6. What characteristic feature of economic rent appears in the contrast 
between the renting contract and the royalty contract. Explain. 

7. Explain a rent charge, noting by wliom, to whom, out of what, in 
return for wliat typical consideration, and for what period the rent 
charge is payable. 

8. Is contract rent a net income to the man who receives it? Give 
specific reasons for your answer. 

9. If you owned the Golden Gate, or the harbor of New York, could 
you rent it? 

CHAPTER 15 

PRINCIPLES OF RENT 

References. 

Fetter, F. A., Tlie passing of the old rent concept. Q. J. E., 15: 416- 

455. 
Taylor, H. C, The theory of rent and American agriculture. A. E. 
Rev., IV (no. 1, supp.) : 108-112. Discussion, 113-114. 1914. 

Questions. 

1. How are the economic rents of agents already in use affected when 
the margin of utilization is extended? Explain clearly why the rents 
are affected in this way and illustrate by an example. 



20 MANUAL OF RKFERENCES 

2. What is tlie effect of the piesence of lower grades of agents upon 
the value of the liigher? 

3. In the light of your answer to the preceding question explain 
what effect tlie extension of the' margin of utilization has upon the rents 
yielded by tlie better use-bearers. Illustrate. 

4. How does the manner in which the American forests and farms 
have been used illustrate the law of rent? Give reasons. Show the 
application of correct principles to our policy for the future. 

5. What effect had the opening up of new agricultural lands in the 
West upon the rents of farm lands in New England? Do these facts 
constitute a contradiction of the principle that an extension of the 
margin of utilization is accompanied by a more intensive utilization of 
agents already in use? Give clearly the reasons for your answer. 

6. How does the hire of a team of horses resemble the rent of land? 

7. How would the rent of a rocky island be affected if it became a 
summer resort? 

8. Does the rent of pianos, typewriters, or masquerade-suits depend 
on the value of the thing rented? Is the rental a moderate return on 
the investment? 

9. Compare gross rents of urban real estate with net rents, showing 
the items that enter into the difference. 

10. "Almost the entire northern and eastern half of the country (the 
United States) is being linked together by a network of trolleys. Mil- 
lions of acres hitherto idle because too far from the market to make 
profitable cultivation possible will be tilled and planted." — The Sun of 
the issue of Thursday, 3 January, 1907. Other things being equal, what 
will be the effect of the above fact upon the rentals of farm lands? 

11. On three pieces of land of various grades of fertility and at various 
distances from the main market, the gross production is respectively 
30, 25, and 20 bushels of wheat per acre; and it requires 2, 3, and 4 
bushels of these respective amounts to be given for transportation to 
market. Will the net rent, expressed in bushels of wheat, be 28, 22, and 
16 bushels of wheat respectively? Give reasons. 

12. A chemical discovery increases the yield of a certain small area 
of cotton growing land of poor quality. The chemical is inexpensive 
and can be applied advantageously only to this particular land. What 
effect will this discovery have on 

(1) The rent of land on which it is used? 

(2) The rent of the best grades of cotton land? 

(3) The rent of cotton land of medium quality? 

13. Suppose an island devoted entirely to agriculture, every square 
foot of which has the same fertility, accessibility, and durability as every 
other square foot. Would rent exist on this island? Reasons. 



AND EXERCISES IN ECONOlVnCS 21 

14. Do improvements in agriculture increase or decrease the rent of 
land? 



CHAPTER 16 

HUMAN BEINGS AND THEIR ECONOMIC SERVICES 

References. 

Materials, 640-643. 

Questions. 

1. Is dancing labor? Is the dancing of a dancing-master labor? If 
he would rather dance than eat, is it labor? 

2. " Washing of clothes is unproductive labor ; therefore as little of it 
should be done as possible." Criticize the argument. 

3. May a singer of songs or a mixer of drinks be called a productive 
laborer ? 

4. Discuss the truth of the following: the building of the tower of 
Babel, whose top was designed to reach unto heaven, was productive 
labor, because the workers on the tower got their pay for their work. 

5. Is the labor that would be required to satisfy the totality of human 
desires for economic goods limited or unlimited? 

6. How does the decrease of the death rate alter the proportion of the 
working life of the average worker as between years when he is mainly 
a consumer (because of youth or old age) and years when he is engaged 
in contributing to his own support and the support of those dependent 
on him? 

CHAPTER 17 

CONDITIONS FOR EFFICIENT LABOR 

References. 

Carlton, F. T., The history and problems of organized labor. 1911. 

Ch. XVII. 
Goldmark, Josephine C, Fatigue and efficiency : a study in industry. 

1912. 
Lapp and Mote, Learning to earn, 1915. 
Materials, 199. 
Source Book, 157-162. 
Spahr, C. B., America's working people. 1900. 

Questions. 

1. Is hunger the cause of food? 

2. What are the necessary conditions to the building of a house: 



22 MANUAL OF REFERENCES 

(a) natural forces; (b) changes in material things; (c) human activi- 
ties; (d) social conditions? 

3. Is tlie public school system an economic factor? Where among 
the four preceding heads would you classify it? 

4. \\'ith a given number of \vori<ers. what may be causes of differences 
in tlie labor-supply? 

5. Which would be of the greatest economic advantage, to increase 
by 50 per cent the intelligence, the physical strength, or the ^integrity of 
the workers of this country? 

(). Would you say that differences in ability at manual trades ai'e 
due to practice or to native talent? If to both, in wliat proportion? 

7. Wovild men worl< better if they ate more? 

8. What moral agencies increase the efficiency of labor? 

J). Is there a strong selfish motive for men to increase their efficiency 
in most industries? How effective is it? 

10. What effect has republican government on the efficiency of labor? 

11. Is the variety of occupation greater or less than formerly? What 
is influencing the change? 

12. What gain is it for men to work togetlier instead of singly? 

1.3. Is there any other kind of limitation upon tlie division of labor 
than " the extent of the market"? Explain and illustrate. 



CHAPTER 18 
THE VALUE OF LABOR AND THE CHOICE OF OCCUPATIONS 

References. 

Adams, T. S.. and (Sumner, H. L., Labor problems. Ed. 1914. Ch. 
XL 

Cairnes, J. E., Leading princii^les of political economy newly ex- 
pounded, 1874, pp. 57-73. 

Carver, T. N., The occupational distribution of the labor supply. A. 
E. Assn. Bui., 4th ser., 2: 204-200. 1011. 

Readings, Bullock, 543-555 on wages in different occupations. 

Source Bool-, 170-183. 

QtTESTIONS. 

1. If rewards were equal, what would determine the choice of work? 

2. Which would you prefer, to clerk in a store at $1.50 a day, or 
to lay masonry at $2 ? Why ? 

3. What is the effect on wages of differences in the pleasurableness, 
social distinction, expense of preparation, of occupations? 

4. If accidents are more frequent in one occupation than in another 



AND EXERCISES IN ECONOMICS 23 

requiring equal skill, are wages higher in consequence, and, if so, in 
what proportion? Examples. 

5. Do sons iisuall,y follow the fathers' trades? Is it more or less 
common than formerly for them to do so? 

6. Mr. James Bryce said that the incomes of American university pro- 
fessors were much less than those of men of corresponding ability and 
training in law and medicine. If true, why? 

7. Are charity workers usually well paid? Why? 

8. Do you know any persons who work from a sense of duty alone? 

9. What is the effect of free common schools on the comparative wages 
of skilled and of unskilled laborers? 

10. What would be the effect of technical and industrial schools on 
the wages of artisans? 

11. If a man is not content with $2 a day, why does he not do work 
that is paid $5 a day? 

12. How do the nominal wages paid for farm labor compare with the 
real wages of this kind of labor? 

13. How is the blacksmith free to compete with the physician and how 
not? In what sense have we assumed that competition exists? 



CHAPTER 19 

PRINCIPLES OF WAGES 

References. 

Compton, Wilson M., Wage theories in industrial arbitration. A. E. 

Rev., 4: 324-342. 1916. 
Davidson, J., The bargain theory of wages. 180S. (Valuable for its 

survey of doctrines rather than for its attempt at a positive theory. ) 
Headings, BuUock, on historical changes in the rate of wages. 
(Source Book, 184-186, 109-205. 

Qttestions. 

1. In what way does labor get paid, and who pays it? 

2. A manager pays a prima donna so much for each evening's per- 
formance. How far is there here any analogy to rent? 

3. Are wages independent of the other kinds of income? 

4. Are fine products high in price because wages are high, or vice 
versa ? 

5. State the economic conditions most favorable to real wages. Give 
reasons. 

6. If by the completion of a new railroad there are rendered accessible 



24 MANUAL OF REFERENCES 

lands hitlierto unused whose productive capacity exceeds that of a part 
of the land already under cultivation. 

(a) What effect will the accessibility of the new land have upon Avages 
and land rent? 

(b) Will both, either, or neither increase absolutely? 

(c) Will wages and land rent bear the same relative magnitude to 
each other? 

Give reasons for your opinion in each case. 

7. Is a high rate of money wages an advantage to a country? If so, 
wherein ? If not, why not ? 



CHAPTER 20 

TIME-PREFERENCE 

References. 

On this and the next chapter no helpful references are to be found 
in the older literature. Tlie subject so far as it w^as treated was in 
connection with the subjective aspects of the interest problem (with 
"economic interest" as it came to be called). So, in the old doctrine 
of " abstinence " and in much of the more recent discussions introduced 
by the Austrian economists, the concept of time-preference was pretty 
clearly recognized. Nowhere, however, in the older literature was the 
concept of time-preference consistently developed and applied as the sub- 
jective aspect of a theory of contractual interest. 

QXTESTIONS. 

1. " Present goods are, in general, worth more than an equal quantity 
of goods of identical quality available at a future date." Under what 
conditions is the proposition untrue? What economic process would be 
impossible if the proposition were always true? 

2. Would tliere be time-discount if there were no borrowing or lend- 
ing? If so, how would it be manifested? 

3. Give three examples (different in kind) of time-preference which 
are not cases of contract interest. 

4. How is the relative value of present goods and future goods de- 
termined? 

CHAPTER 21 
RATE OF TIME-PREFERENCE 
QmESTIONS. 

1. Give examples of a high cost for the use of wealth without the 
borrowing of money. 



AND EXERCISES IN ECONOMICS 25 

2. Give some examples of the neglect of repairs through lack of re- 
sources, and show how the neglect involved time-value. 

3. A person gives in a particular instance only twenty-five times the 
annual rent of a certain durable agent in exchange for the right to its 
rentals in perpetuity. What, under these circumstances, is the prevail- 
ing rate of time discount? How is this rate determined? 



CHAPTER 22 

MONEY AND CAPITALIZATION 

References. 

Hildebrand, Bruno, Jahrbiicher der Nationaloekonomie, vol. 1. (No- 
table article on the growth of the money economy.) 

Questions. 

1. Can all kinds of wealth be measured as capital? Give reasons for 
your answer. 

2. When a man says he has a certain capital invested in his business, 
does he mean to include the value of the land and buildings? 

3. What is the meaning of the phrase, " a capitalistic age "? 

4. The discovery of the western hemisphere resulted in pouring upon 
European markets an enormous amount of money made from the precious 
metals extracted from American mines. In the absence of any other 
disturbing cause, would this rapidly increasing amount of money increase 
or diminish the number of years' purchase for which rent-charges would 
thereafter sell, if we assume that, on the average, twenty years' purchase 
had been the rate prevailing prior to the increased money supply? Give 
reasons for your answer. 

5. What is meant by the present Avorth of a sum of money due at a 
future time? If the use of money is worth 5 per cent annually, what 
is the present worth of $525 due one year from now? If the use of 
money is worth 3 per cent annually, what is the total present worth of 
three annual incomes of $100 each, the first due in one year, the second 
in two years, and the third in three years? 

CHAPTER 23 

CAPITALIZATION OF MONETARY INCOMES 

References. 

Bauer, John, The idea of capitalization as applied to public service cor- 
porations. Journal of Accountancy, July, 1916. 
Lyon, W. H., Capitalization: a book on corporation finance. 1912. 



26 I\L\NUAL OF REFERENCES 

Materials, 635-G39. 

Ripley, ^V. Z., The capitalization of public-service corporations. Q. J. 

E., 15: 106-137. 1900-1901. 
Source Book, 120-129. 

QUBSTIONS. 

1. Show, where possible, in regard to (a) psychic income, (b) usance, 
(e) capitalization, (d) time-value,— how each is seen in the case of 
wine, a dwelling, a factory, a $5 gold piece, and a day's labor. 

2. Explain the relation between usance-value, capital-value, and the 
rate of time discount. 

3. Are there any goods whose rental value and capitalized value are 
the same? If so, give examples of such goods. 

4. If the rent of a tent is $10 a year and a man expects to go camping 
for five years, how much can he aflford to pay for a tent bought outright ? 
Show the various considerations entering into the calculation. 

5. Show the resemblance to the purchase of a rent charge involved in 
the purchase of a dwelling house; a factory; a government bond. 

6. Why is the compounded discount of future incomes always such 
as to yield the same rate of simple interest on the capital? 

7. An estate (treated as durative) with a rental of $100 a year sells 
at $2000. What rate of yield on the investment does this give? If it 
sells at $2200? $2500? $1600? $1800? 

a 

( Formula is r =; Where r is the rate, a the annuity or annual 

income, and P the principal or present worth. 
Prove by the formula Pr 3= a.) 

8. If $943.40 is paid for a note of $1000 due in one year, what rate of 
yield on the investment is involved? If $961.54 is paid? If $956.90 is 
paid? 

9. Take first the rate found in question 8, and vising it as a discount 

rate (see text, p. 275, note) calculate the present worth of $1000 due in 

two years. 

S 
(Formula is P=::^ wliere S is the future sum and n is the 

"T" number of years for which S is compound- 

edly discounted.) 

10. Take tlie second rate found in question 8, S being $2000 and n 3 
years. Find P. 

11. Take third rate found in question 8, S being $5000, and n 4. Find 
P. 

12. If $75 are due in 1918, what is the present worth of the sum on 
the same calendar day in 1917 if the rate of interest is 3 per cent? 5 
per cent? 6 per cent? Perform the arithmetic process. 



AND EXEECISES IN ECONOMICS 27 

13. What is the present worth of this sum in 1915 at 3 per cent; at 5 
per cent; at 6 per cent? (A table of the present worth of $1 may be 
used if at hand; otherwise perform the arithmetic process.) 

14. How much is a " four per cent " $1000 bond, maturing in two 
years worth now, wlien the actual rate of interest paid on similar bonds 
now being issued is 4 per cent? 5 per cent? 6 per cent? (In this and 
the following examples the interest is paj^able annually, at tlie end of 
the year, the first payment being due a year hence. Observe that such a 
bond may be treated mathematically as containing one income of $40 due 
one year hence, and one income of $1040 due two years hence.) 

15. A bond bearing 5 per cent interest and due in three years is sold at 
a price to yield 6 per cent. What is its price ? 

16. What is the present worth of a group of three incomes, $300 the 
first year, $200 the second, $100 the third year, and nothing thereafter, 
interest being estimated at 5 per cent? 

17. Interest being 4 per cent, what income in perpetuity (perpetual 
annuity) is the equivalent of $1000 at once; $200 a year hence; $50 a 
year for three years? 

18. Assume that the rate of interest on long time loans rises during 
a given period from five per cent to six. In what direction and to what 
extent will the price of real estate yielding comparatively safe permanent 
incomes change during that period, assuming that no change in the in- 
comes is expected? Is it correct to say that such a change in the price 
of real estate is due to a change in the returns obtainable in manufacture 
and commerce? 

19. If the world's rate of interest rises, do people put a lower estimate 
than before upon immediately enjoyable goods (as compared with the 
same goods in the future) or a higher estimate? Which is cause and 
which eflTect? 

20. If a business is very successful and its dividends double, Avhat 
will be the effect on the selling price of its stock? 

21. One hundred thousand dollars have been expended in buying land, 
machinery and other necessary equipment for a manufacturing plant. 
The amount has been obtained by selling 1000 shares of common stock 
at par ($100 per share). Assuming that the prices paid for land, ma- 
chinery and equipment have been the prevailing market prices, will the 
capital value of the plant conform to the past expenses ($100,000) in- 
curred or to the future dividends anticipated? 

22. Given the value of the total product of a factory, the prevail- 
ing rate of interest, tlie cost of raw materials, human services, and up- 
keep of buildings and machinery (there is not cost of up-keep for the 
land in this case), how would you proceed to find the value of the 
plant? 



28 MANUAL OF REFERENCES 

Explain fully the principle iipon whit-li you Avould estimate the capital 
value of land, of buildings, and of machinery, separately. 

23. A certain man holds promissory notes which entitle him to receive 
the following sums:— $1000 two years from now; $2000 four years 
from now; and $3000 six years from now. 

(a) Assuming that the notes are certain to be paid when due, explain 
fully why their total present value would be some other sum than 
$6000. 

(b) Show how the principle involved applies in the case of the price 

paid for a factory. 

(c) Give and explain the formulas for computing the present values 
in the foregoing cases. 

24. Tlie capital stock of a certain company consists of 10,000 shares 
of a par value of $100 each; its net income is, and promises to remain, 
$100,000 a year. If the market rate of interest is 5 per cent, at what 
price will the shares sell? 

25. A man buys to-day an annuity which entitles him to receive $1000 
per year for 20 years. ($20,000 in all.) Will he be willing to pay for 
it exactly $20,000, or more, or less? Just how would he calculate the 
amount he would be willing to pay for it? 

{Note: Do not go through the mathematical operations, but explain 
exactly what they would be. ) 

26. An apple orchard, it is estimated, will in five years from the present 
begin to yield income. The gross income is calculated at $200 the first 
year it affords an income ; at $250 the next year ; at $300 the third ; and 
at $300 for each successive year for ten years. At the end of this period 
the trees will cease bearing and will sell for firewood for $200, while 
the land covered formerly by the orchard will be worth $1000. The 
prevailing rate of inteiest is 5 per cent. 

Explain in detail the method (do not make the numerical calculations) 
by which the present capital value of the orchard is computed. If you 
use the term net income in your answer make clear what the term means. 

27. If a $100 share of railroad stock sells at par when interest on 
loans is at 5 per cent, what will be its price when interest rises to 6 per 
cent? When interest falls to 4 per cent? 

28. One year ago the American Cereal Company sold (at par) an issue 
of four per cent $1000 bonds to mature five years from date of issue. If 
on account of the war the market rate of interest is now six per cent, 
would the present value of the bonds be more or less than $1000, and 

' how would it be calculated? 

29. Suppose you bought on January 1, 1913, a 20 year annuity yield- 
ing $100 annually, payable on the first day of January each year of the 
20 years it continues, the first payment to be made Jan. 1, 1916. Making 



AND EXERCISES IN ECONOMICS 29 

such assumptions as are necessary, give a formula for computing the sum 
you must pay for this annuity. Explain your work clearly. 

Suppose that on Jan. 1, 1915, the rate of interest on long term invest- 
ments dropped one-half of one per cent per annum. Would this change 
in the interest rate affect the value of your annuity purchased Jan. 1, 
1913? Give reasons. If so, would its value increase or decrease? 

30. (a) The organizers of a certain corporation have estimated after 
very careful calculation that its annual net earnings will be $1,000,000. 
How much capital stock will they issue if the corporation is to pay 
5 per cent annual dividends? 

(b) Assuming that the corporation proves conclusively, within a few 
years, its ability to make the annual net earnings anticipated by its 
organizers ($1,000,000), and assuming that the prevailing rate of in- 
terest in similar investments is 4 per cent, will the stock sell above par, 
at par, or below par? 

(c) If now the prevailing rate of interest falls from 4 per cent to 
3 per cent, what will be the effect on the market price of the stock? 
Reasons. 

(d) If (with no change in the prevailing rate of interest) the net 
earnings of the trust are doubled, what will be the effect on the market 
price of the stock? 

31. Suppose you own a bond of the face value of $1000 issued by the 
New York Manufacturing Company on January 1, 1898, for 25 years, 
bearing interest at 4 per cent on face value ; and suppose when issued the 
bond was sold at par. For how much can you sell that bond on Jan. 
1, 1917, just after the annual interest has been paid, — supposing the 
market rate of interest then at 6 per cent? Show your calculations and 
briefly but clearly explain the processes, — without solving for final value. 

32. Assume two $1,000 bonds of equal security, each paying six per 
cent on the par value. One bond is to mature ten years from now; the 
other twenty years from now. How would the present values of these 
two bonds compare under each of the following hypotheses as to the 
prevailing rate of interest? (a) If the prevailing rate of interest is 5 
per cent? (b) If it is 6 per cent? (c) If it is 7 per cent? 

33. A $1000 bond issued in 1905 to run 20 years was purchased in 
1910; the bond was of a 6 per cent issue, and the current rate of interest 
at time of purchase was 5 per cent. What was the price of the bond? 
Explain your calculations. 

34. In a given community where competition is practically perfect, 
and in which there is no risk of the non-fulfilment of contracts, there is 
in the hands of certain farmers a large stock of wheat all of the same 
grade, much of which Avould be loaned for a consideration. If for every 
100 bushels delivered to-day on loan, there were required a promise to re- 



30 MANUAL OF REFERENCES 

turn 105 bushels one year hence, lenders would stand ready, in the 
absence of more favorable terms, to deliver to-day a total of 100,000 
bushels, and borrowers to accept to-day deliveries of 60,000 bushels. In 
case, however, for every 100 bushels delivered to-day the guaranteed re- 
turn one year hence were 104%, 104^/^, and 104^4 bushels respectively, 
the total deliveries that would be forthcoming on loan would be 90,000, 
85,000 and 70,000 bushels respectively. Those who desire to borrow 
wheat to-day would be willing to take an increase of 12,500 bushels (over 
and above the 60,000 bushels mentioned above) for every quarter bushel 
less than 105 bushels which they must promise to return a year hence 
for every 100 bushels received to-day: 

(a) Required the prevailing rate of interest in terms of wheat, with 
reasons. 

(b) If a particular farm in the above-mentioned community yielded 
a gross rent of 12,000 bushels and a net rent of 5,000 bushels, what would 
be the capital value of the farm in question? 

35. It is estimated that the yield of a lot in a valuable location in a 
city will be as follows: with a building costing $50,000, the gross rental 
would be $10,000, the expenses (taxes, repairs, care, etc.) 3,500; with a 
building costing $200,000 the gross rental would be $22,000, the expenses 
$10,000. Which would be the better investment if money is to be bor- 
rowed at 5 per cent? At 10 per cent? What are the rental value and 
the probable capitalization of the land alone? 



CHAPTER 24 
SAVING AND BORROWING 

RlIFERENCES. 

Ashley, W. J., English economic history. Ed. 1911. Vol. 1, pt. 1, pp. 

148-163. 
Hamilton, J. //., Savings and savings institutions. 1902. 
Readings, Bullock, 318-324, criticism of the doctrine of saving. 

Questions. 

1. Which is the more needful for economic welfare, conservative or 
cumulative abstinence? 

2. Is it money or other things that the borrower wants? 

3. If you were starting a factory on credit, would you rent the 
machines or buy them with borrowed monej'? Why? 

4. When a person borrows money and pays interest on the loan, is 
his purpose essentially the same as when he pays rent for the use of 
durable agents? 



AND EXERCISES IN ECONOMICS 31 

5. Through what agencj^ does the Western farmer borrow Eastern 
capital ? 

6. How do Englishmen invest in American railroads? 

7. Is a man ever justified in borrowing money to spend on con- 
sumption goods? 

8. Are men less able to bargain for the loan of money than for other 
things ? 

9. Can law fix the rate of interest at any point desired? If so, then 
why not at zero; if not, then why fix any maximum rate of interest? 

10. Some monej^-lenders in cities get 10 per cent a day from fruit- 
venders for the advance of small sums of money, and the losses are very 
slight. Pawnbroking pays frequently 25 to 100 per cent per year. In 
these cases what afi'ects the rate of interest? 

11. What would be the eft'ect upon the rate of interest in a new state 
if it passed a law preventing the collection of loans by outside lenders? 

12. In what ways can a lender collect a high rate of interest without 
appearing to do so? 

13. What is the present rate on call loans in the New York money 
market? On commercial paper 60 to 90 days; at three months; at six 
months? Ref. : Daily Newspapers. 

14. On December 27, 1905, the rate of interest on demand loans 
reached 100 per cent. W^ith call money at 100 per cent it costs a specu- 
lator $277 a day for each $100,000 borrowed, (a) Under what circum- 
stances must speculators pay sucli a rate? (b) Why do they not use 
the cheaper time loan? (c) Why does such a loan not run counter to 
the usury law? 

15. Suppose a farmer decided to borrow $2000 at G per cent interest 
for draining and improving his farm. What estimate does the farmer 
make as to the increased productivity of his farm due to the improve- 
ments before he makes up his mind to borrow this amoimt? Does the 
capital borrowed produce the interest thereon? 

16. If a railroad company employs a watchman at a grade crossing 
at a salary of $400 a year and it would cost $7,500 to run its tracks under 
or over the street, thus dispensing with the services of the watchman, 
what would be the eft'ect of a fall of the rate of interest from 6 per cent 
to 4 per cent? Why? 

17. A company with capital stock to the amount of $1,000,000 bor- 
rows an equal sum by bond issue at the rate of 5 per cent to expend in 
permanent improvements which increase its earnings by $70,000 an- 
nually. What are the probable effects upon the amount available for 
dividends and upon the price of the shares? Would it have borrowed 
if the rate of interest had been 7 per cent or 8 per cent? If it had 
been 4 per cent or 3 per cent ? 



32 MANUAL OF REFERENCES 

CHAPTER 25 
CAPITALIZATION AND INTEREST 

References. 

Fetter, F. A., Interest theories, old and new. 4: 68-92. Capitaliza- 
tion vs. productivity: rejoinder. A. T. Rev., 4: 856-859. 1914. 
(For those interested in the more theoretical aspects.) 

Fisher, Irving, The rate of interest. 1907. 

Iladley, Economics, sees. 155-158 (on usury laws). 

Materials, 773-782. 

Readings, Bullock, 563-568, for historical changes in the rates of 
interest. 

Walker, F. A., Political Economy, 330-340 (on usury laws). 

Questions. 

1. Which is the more important for the rate of interest, the amount 
of money in the banks or the amount of goods in the country? 

2. If the loanable funds, including money, in a community suddenly . 
and markedly increase, how will the interest rates on call loans and 
long time investments respectively be affected? 

3. In a panic, interest rises on short loans and prices fall, while 
it is almost impossible to borrow money ; does this show that the amount 
of money determines the interest rate? 

4. When gold is leaving England, the bank raises the rate of dis- 
count (interest) ; does this show that the quantity of money determines 
the rate of interest? 

5. In what waj^s is the rate of interest affected by the rise or fall 
of the value of money ? 

6. What is the effect of a great catastrophe like the San Francisco 
earthquake and fire upon the rate of interest? 

7. What is the effect of the building of new railroads upon the rate 
of interest, (a) immediately, and (b) in the long run? 

8. If large improvements which will greatly increase the production of 
wealth ten years from now are to be undertaken at the present time on 
borrowed money, what effect will these operations tend to have, if under- 
taken, upon the rate of interest at present and upon the rate of interest 
ten years hence? 

9. What is the " money market " ? Who are the buyers and sellers, 
and what do they buy and sell ? 

10. How do laws fixing a legal rate of interest work in practice? 

11. Are interest rates changing in America? If so, how? 

12. Why has interest been about 10 per cent in the West, 7 per cent 
in the Central States, 5 per cent in New York, 4 per cent in Germany? 



AND EXERCISES IN ECONOMICS 33 



CHAPTER 26 

ENTERPRISE 

References. , 

Knoop, Douglas, American Business Enterprise. 1907. 

Questions. 

1. Are the dividends on stock in whole or in part enterpriser's profit? 

2. Wlio is the enterpriser in a stock company where there is a superin- 
tendent elected by a board of directors, themselves elected by share- 
holders with one vote per share? 

3. A company is organized with $150,000 in common stock all paid 
in, and held in equal amounts by A, B, and C. The proceeds are invested 
in lands, buildings, equipment and materials. A becomes an active 
manager of the business at a salary of $5000, B retains his stock but takes 
no active part, and C sells his to several other investors. The company 
pays 6 per cent dividends, but a larger plant being necessary, issues 5 
per cent bonds for $100,000 and thereafter pays 7 per cent dividends. 
By whom is the enterpriser's function exercised? 

4. Who is the employer in a cooperative cooper-shop whose superin- 
tendent is elected by the workmen? 

5. A business conducted by a corporation pays incomes for those 
services which in the case of a business owned and managed by an indi- 
vidual enterpriser would be remunerated by economic profits. Give the 
names applied to each of these payments by the corporation, and the 
function or functions for the discharge of which each is paid. 



CHAPTER 27 

MANAGEMENT 

Refebences. 

Ilaney, L. H., Business organization and combination. 1013. 

Hoxie, R. F., Scientific management and labor. 1915. 

Materials, 204-206, 219-228. 

Meade, E. 8., The work of the promoter. A. A. A., 20: 559-570. 1902. 

Questions. 

1. What is the relative importance of organization in sawing wood, 
building houses, running a small store, or a large factory? 

2. Which wins the battle: the general, the soldiers, or the armament? 

3. What determines whether a crop is poor or good: the ground, the 
weather, or the farmer ? 



34 MANUAL OF REFERENCES 

4. One has said : " Tlie natural differences in powers and aptitudes 
are certainly not greater than are natural differences in stature." la 
this sound in an economic sense? 

5. Who runs the business in a large store owned by a large family? 
Who ha^ the risk ? 

6. Is it production to buy fifty cents' worth of yarn and knit a pair of 
socks worth twenty-five cents if you enjoy doing it? If you do not 
enjoj' it? 

7. Outline the combination of factors tliat has produced New York 
bread made from Minnesota wheat. 

8. Is advertising of any social service or is its sole purpose to divert 
trade from one merchant to another? 

9. Would you prefer to begin your business career with a large com- 
pany or with a small merchant? Why? 

CHAPTER 28 
PROFITS AND COSTS 
References. 

Davenport, 77. •/., Value and distribution. 1908. 

Evans, 77. A., Cost keeping and scientific management. 1911, 

Green, D. I., Pain-cost and opportunity-cost. Q. J. E., 8 : 218-229. 

1893-1894. 
Materials, 796-799. 
Readings, Hamilton, 77-79. 
Tipson, F. S., The theory of accounts. 1913. 

Questions. 

1. What is the cost of a good jou have made entirely with your own 
labor ? 

2. What is the difference to the employer between rent, interest, and 
wages as items of cost? 

3. In competitive industry to what kinds of activity are the profits of 
enterprisers traceable ? 

4. Are competitive profits a benefit or a detriment to society as a 
whole ? 

5. How should the income of an inventor be classified, as w'ages or 
profits ? 

6. Are the profits of the employer deducted from wages? Are the 
high wages of skilled labor deducted from the wages of imskilled? 

7. If the editor of a newspaper owns shares in the newspaper cor- 
poration, of what impersonal shares of social income is his personal 
income made up? 



AND EXERCISES IN ECONOMICS 35 

8. Business being poor, one employer is making good profits; how 
different will be the wages he pays from those paid by the unsuccessful 
employer ? 

9. ^^ hen prices fall, what determines which factories shall close, and 
which workmen shall be discharged? 

10. Assuming that a good which has onlj' a direct consumptive use is 
produced continuously under competitive conditions, how and to what 
extent does money cost of production operate in the determination of its 
price? What determines the money cost of production? 

11. Are enterprisers' profits a part of the costs of production? 

12. " Let it be assumed that a manufacturer of hats faces the following 
situation: per unit of product he expends $1 for wages and 50 cents 
for raw materials; the capital employed in producing a hat would else- 
where earn liim 15 cents ; as employee in some one's else service, he could 
earn 15 cents for each hat now produced; transferring himself and his 
productive equipment to the shoe industry, he could obtain a product of 
$1.85 in place of each hat now produced; he sells his hats at $2.00 each; 
What is his cost of production and what his profit per hat ? " Davenport, 
Value and distribution, p. 88 



CHAPTER 29 

VARIOUS SHADES OF PROFITS 

Rb^ferences. 

Materials, 818-819, 822, 823. 

Questions. 

1. What are the chief elements of business success? 

2. Has " a good chance in life " much to do with success? 

3. How many of the men j^ou know at the head of large businesses 
started life poor? Was the rise in fortune due most often to chance, 
inheritance of wealth, or exceptional ability and power of work ? 

4. Does luck have greater influence on business success in an old 
country or a new one? Ditto in agriculture, mining, commerce, or manu- 
factures ? 

5. In a certain community an unimproved building lot, a rare coin, 
and the " good-will " of a business sold for the same sum. The com- 
munity grew rapidly. At the end of two years, the lot, the coin, and the 
" good-will " each sold for twice the original amount. Apply the principle 
of the " unearned increment." 

6. What inequality occurs in the changing values of city land-sites? 
What bearing has this on the question of the unearned " increment " ? 



36 MANUAL OF REFERENCES 

7. A miller bought 20,000 bushels of wheat in February at $1.00 per 
bushel, to be made into flour and marketed in May. In February, May 
wheat sold at $1.02. In May wheat had fallen to 87 cents. How do 
millers regularly protect themselves from loss in such circumstances? 



CHAPTER 30 

COSTS AND COMPETITIVE PRICES 

References. 

Bean, B. C, Cost of production. 1905. 

Cole, W. M., Accounting methods for determining costs and prices. 

A. E. Assn. Bui., 4th ser., 2: 124-135. 1911. 
Materials, 410-414. 
Source Book, 228-232, 233-246, 247-254. 

Questions. 

1. Suppose a watch is offered for sale at $20.00. Under free competi- 
tion is this price fixed by the manufacturer, or by the cost of the 
materials and labor entering into the watch, or by both or neither? 
Explain. 

2. Can wages be increased at the expense of profits? If so, within 
what limits, and by what means? How is it that wages and profits are 
both comparatively high (a) in the United States, (b) in the United 
K ingdom ? 

3. Point out the differences and the similarities between the retail 
grocery business and the railway business as to (1) capital investment; 
(2) the possibility of determining the cost in each business of the goods 
or services sold ; ( 3 ) the prices and the rates charged in each business ; 
(4) the effect upon prices and rates of a large increase in business in 

both undertakings. 

4. Suppose the costs of production should be reduced 50 per cent 
immediately and everywhere for the following goods : ( 1 •) Rubber, 
because of the " synthetic process " of making rubber from starch, the 
sources of cheap starch being potatoes, sago, and corn. (2) Sugar made 
from cornstalks, straw and banana skins, — materials worthless or almost 
worthless heretofore. 

(a) Would the immediate and the final effect of this halving of the 
costs of production be beneficial or detrimental to (1) manufacturers' 

' profits in the rubber and sugar industries ; ( 2 ) employees and wages in 
the above-named industries; (3) consumers of rubber goods, and sugar? 

(b) What effects, if any, would the above changes in production costs 
have upon enterprises and employees engaged in producing potatoes, steel 



AND EXERCISES IN ECONOMICS 37 

rails, wheat, lumber and woolen cloth? Would the consumers of the 
above-named commodities be at all affected by the lessened costs of pro- 
ducing rubber and sugar ? 

5. Agricultural land, farm machinery, farm animals and human labor 
are necessary in the production of a crop of wheat. How are the rentals 
of the durable agents and the wages of labor fixed in this case ? Suppose 
the total product in the above case is 10,000 bushels of wheat. Divide 
this product arnong the various costs of production so as to show what 
gross rent is and what net rent is. 



CHAPTER 31 

MONOPOLY-PRICES; LARGE PRODUCTION 

References. 

Agger, E. E., Monopoly and competitive prices. A. E. Rev., 3: 589- 

597. 1913. 
Ely, R. I., Monopolies and trusts, 1900. 
Jenks, J. W., The trust problem. 1900. 
LeRossignol, J. E., Monopolies past and present. 1900. 
Materials, 818. 

Questions. 

1. If one company controlled all the petroleum in the world, what 
would it consider in fixing the selling price? 

2. What is meant by the statement, frequently heard, that cost of 
production fixes the price of goods? How does this apply to monopoly 
price? Explain carefully and diagram. 

3. Can the large factory always undersell the small one? Why? 

4. One of the subsidiary companies of the Normal Oil Company once 
issued a stock dividend amounting to 2900 per cent of the outstanding 
stock. Should this be classified as economic profits, monopoly profits, 
gambling gains or as something different from any of these? 

5. What price would a monopoly set under the following conditions of 
production and sale? 

LTnits Cost per unit Selling price 

100 8.00 11.00 

200 7.50 10.50 

300 7.00 9.50 

400 6.00 8.00 

500 5.50 7.00 

6. A soap monopoly finds that its costs of production and its selling 
prices vary with output as below. 



38 MANUAL OF REFERENCES 



Output 


Total Costs 


Sell: 


ing 


Price Per Cake 


100,000,000 cakes 


$4,100,000 






6^ 


150,000,000 cakes 


5,500,000 






5Vs4 


200,000,000 cakes 


6,100,000 






m<^ 


250,000,000 cakes 


6,600,000 






H 


300,000,000 cakes 


7,200,000 






3^2^ 



How many cakes will the monopoly sell under these conditions? Why? 

Suppose costs of production increase one cent per cake, demand remain- 
ing the -same. Will this increase in costs have any effect on the output 
of the soap monopoly? 

7. The manufacturer of a certain patent pill finds that his constant 
costs of production (i.e. the costs that remain unchanged whether the 
output be large or small) are $100,000. The variable costs of production 
over and above constant costs and the selling price obtainable for different 
quantities of output were found to be as follows : 





Variable Costs 


Selling Price 


Quantity doz. 


per 


doz. (cents) 


per doz. 


(cents) 


1,000,000 




2 




15 


1,500,000 




lys 




13 


2,000,000 




1% 




11 


2,500,000 




1% 




9 


3,000,000 




11/2 




8 


4,000,000 




IV2 




6 



How manj^ dozen pills would the manufacturer make and sell? Give 
reasons. 

8. A patented article which costs $20 to make and sell can be sold in 
the quantities indicated at the prices indicated. 

$38 150O $40 1450 $42 1300 

39 1500 41 1400 43 1200 

At what price will the manufacturer sell? If the cost per unit in- 
creases to $21 when the output falls to 1450, and to $22 when the output 
falls to 1400 or less, what price should he fix and why? Explain the 
difference between this and the ordinary case of price fixing under com- 
petitive conditions. 

9. A gas company having a monopoly in a small town finds that 
corresponding with various prices per thousand feet, the consumption 
per month and the expenses vary as follows : 



AND EXERCISES IN ECONOMICS 39 

Consumption Variable 

Price (1,000 ft.) Expenses 

$1.75 1,000 $ 800 

1.50 1,200 850 

1.25 1,500 900 

1.00 2,000 950 

.75 2.250 1,000 

The fixed expenses being $500 a month, at what figure will the price be 
fixed, assuming that there is no fear of competition by electric light or 
other companies? What items of expense may be deemed fixed, and 
what variable? 



CHAPTER 32 
THE PROBLEM OF POPULATION 
References. 

Fetter, F. A., The essay of Malthus. Yale Rev., 7: 153-167. 1898- 

1899. 
Readings, Bullock, 275-286, extract from Malthus. 
Readings, Hamilton, 381-382. 

Questions. 

1. What limits the number of wild rabbits? Of tame pigeons? Do 
the same influences act in the case of men ? 

2. If the maximum human birth-rate were constantly maintained, 
what would be the effect on the average duration of life? 

3. Discuss the following statement from an economic standpoint: 

" But, unfortunately, there is a limit to the supporting capacity of the 
earth, and, according to scientists, this limit will be reached when the 
earth's population is 6,000,000,000, or four times as much as its present 
estimated number. As the earth doubles her children every 140 years, 
it is easy to calculate that in 280 years, or in the year 2,180, there will 
be positively no room for more, and unless by that time there are facilities 
for emigrating to other planets some serious steps will have to be taken 
to restrict the growth of our numbers. 

" If by any chance it should be possible to surmount the difficulty of 
our support, and if the population continues to increase at present rates, 
a more difficult problem still will have to be faced a thousand years or so 
later, in the year 3160. For by that year — which, happily, none of us 
may see — the earth's brood will have grown to such proportions that 
every square yard of solid ground will have its population of three per- 
sons, each inhabitant of the earth being thus strictly limited to three 



40 MANUAL OF REFERENCES 

square feet of land for all purposes of support and domicile. And here 
we may leave the problem, confessing our impotence to cope with it, and 
selfishly congratulating ourselves that for our time at least the earth 
will furnish ample elbow room." 

4. Community X has a total population of 527,490. There are on an 
average 497 births in this community each week and 375 deaths each 
week, (a) What is its birth-rate? (b) What is its death-rate? (c) 
What is the probable location (geographically) of this community? (d) 
What is its probable economic condition? Prove your answer in each 
case. 

5. Suppose that for the period of one hundred years the death rate 
in a populous nation has remained constant at 20 ; that the population has 
been and is entirely dependent for its support, so far as material resources 
are concerned, upon its own territory, and has never engaged in foreign 
trade; that the said territory has not changed in area and was all under 
cultivation from the beginning of the period ; and that, moreover, through- 
out the entire one hundred years the birth rate has continued constantly 
at the maximum. From the preceding data, point out the general charac- 
ter of the changes which must necessarily have taken place in the pro- 
ductive industrial processes, and explain why such changes must have 
occurrred. 



CHAPTER 33 

VOLITIONAL DOCTRINE OF POPULATION 

References. 

Materials, 123-134 (Extracts from same source). 

Readings, Hamilton, 388-392. 

Source Book, 163-175 (Extracts from same source). 

Questions. 

1. Has the principle of the survival of the fittest any influence on the 
population of America? 

2. What application has the principle of economic utilization to the 
question of population? 

3. If the laborers acquire tastes for better food, clothing, houses, music, 
theaters and the like will their wages be affected ? 

4. From the following and similar figures, a German statistician 
formulated what is called " Engel's law " as to the proportion of the 
expenditures going for food. 



AND EXERCISES IN ECONOMICS 



41 



PER CENT SPENT BY 

Laboring 

Food 62~ 

Clothing 16 

Shelter 12 I 95 

Fire and light 5 

Education 2' 

Public safety 1 

Health . . .' 1 

Labor 1 



AMILIES IN 


SAXONY 




kliddle 


Class 


Well-to-do 


55 




50 




18 
12 


' 90 


18 
12 


>■ 


5 

3.5 




5 

5.5 




2. 
2. 


- 10 


3. 
3. 


- 


2.5 




3.5 





85 



15 



law " ? 
Summarize results and compare with 



How would you formulate the 

5. Work out the following table 
the results obtained by Engel. 

Table showing approximate expenditures of students in Arts courses 
in Cornell University (about the year 1900) in four groups. 



Food $112.00 

Clothing 48.00 

Lodging 45.00 

Tuition, books, apparatus, uniforms, 

traveling to and from the university 146.00 
Recreation and sports 9.00 



II 


III 


IV 


$146.50 


$149.00 


$156.00 


68.00 


216.00 


253.00 


67.00 


102.00 


111.00 



170.50 224.00 230.00 



48.00 



59.00 250.00 



Total $360.00 $500.00 $750.00 $1000.00 



CHAPTER 34 

DECREASING AND INCREASING RETURNS 

References. 

Fetter, F. A., Population or prosperity. A. E. Rev., 3 (no. 1, supp.) 

5-19. 1913. • 
Willcox, W. F., The density of population in the United States in 

1890. A. E. Assn., Econ. Studies, 1 (supp.) ; 115-119. Discussion, 

119-123. 1896. 
Willcox, W. F., Area and population of the United States at the 

eleventh census. Ibid., 2 : 207-257. 1897. 
Willcox, W. F., Density and distribution of population in the United 

States at the eleventh census. Ibid., 2: 385-455. 1897. 
Willcox, W. F., The expansion of Europe in population. A. E. Rev., 

5: 737-752. 1915. 



42 MANUAL OF REFERENCES 

Questions. 

1. Senior states that additional labor when employed in manufacture 
is more, when employed in agriculture is less, efficient in production. 
(a) What economic law (or laws) is here referred to? (b) Prove the 
truth or falsity of either statement. 

2. Criticize the following, giving your reasons for believing it correct 
or incorrect : " Manufacturers frequently show increasing returns for 
every dollar invested, whereas agriculture is subject to the law of 
diminishing returns." 

3. Suppose an immigration of a million a year for a period of ten 
years into a country, the immigrants having the same average standard 
of life and the same average ability as the natives. Under what condi- 
tions would (a) decreasing returns result? (b) increasing returns result ? 



CHAPTER 35 

BASIC MATERIAL RESOURCES; THEIR USE, CONSUMPTION, 
AND CONSERVATION 

Reiferences. 

Callender, ch. XIII. 

Fernow, B. E., Economics of forestry. 1902. Ch. XI. 

Blaterials, 77-102 (Extracts from same source). 

Pinchot, Gifford, The Conservation of natural resources. Farmer's 
Bui. 327, U. S. Dept. of Agric, 1908. 

Pinchot, Gifford, The fight for conservation. 1910. 

Source Book, 91-101, 102-116 (Extracts from same source), 265-274. 

Van Hise, C. R., The conservation of natural resources in the United 
States. 1910. 
Questions. 

1. What kinds of material agents will probably increase in value rela- 
tive to other kinds? 

2. It is said that the iron and coal deposits of China are the richest 
in the world. With these resources in conjunction with cheap labor, 
could China develop into the greatest industrial nation of the world? 
What effect would the sudden exploitation of the resources have on the 
price of iron and steel? 

3. What is the present importance of water power in the industry of 
the country? What appears to be its future? 

4. What are some of the chief problems of " conservation " and how 
do the principles of depreciation, repairs and usance apply to each of 
them? 



ASD EXERCISES IN ECONOMICS 43 

CHAPTER 36 
MACHINERY AND WAGES 

References. 

Commons, J. R., Trade Unionism and labor problems. 100.5. Pp. 
250-273. From Yale Rev., 13: 251-273. 1904. 

Materials, 158-159, 160, 161-163, 164-170 (Extract from Quain- 
tance) . 

Qiiaintance, H. W., The influence of farm machinery on production and 
labor. A. E. Assn. Pubs., 3d ser., 5: 1-106. 1904. 

Readings, Bullock, 125-154, on inventions and the factory system. 

Readings, Hamilton, 449-450 (Extract from ^^Tiite), 450-452. 

(Source Book, 206-213. 

White, Henry, Machinery and labor. A. A. A., 20: 223-231. 1902. 

Questions. 

1. Why has machinery changed the relations of workman to master? 

2. What is the diff'erence to the workman whether he becomes more 
efficient or works with a better machine ? 

3. Is the work of any kind fixed in quantity? What would cause it to 
change? 

4. Is an ultimate decrease in employment in the particular industry 
into which labor saving machinery is introduced likely to prove the rule 
or exception? 

5. What kinds of laborers were thrown out of employment by the 
invention of the type-writer? What kinds of labor found employment 
as a result of its invention? Was the net result a gain or a loss of 
employment ? 

6. Answer the same questions with regard to the invention of rail- 
roads, mowing-, binding-, and threshing-machines; or the new roller- 
process of flour milling. 

7. The introduction of glass-blowing machines enables one man to 
do the work of ten men using the old hand processes. Will this invention 
decrease the demand for labor permanently in the glass-blowing industry? 

8. If a machine which does work previously performed by hand is sud- 
denly introduced into a trade, what conditions will determine the eflfect 
of this in the long run upon (a) the workmen who have been doing the 
Avork by hand; (b) the number employed in that trade; (c) the average 
wages in that trade? Assume that there is no labor organization in 
the trade. 

9. In a given trade in which there is no union a machine is suddenly 



44 MANUAL OF REFERENCES 

introduced. This machine can produce goods of the same quality as 
were formerly produced by skilled hand workers, and requires for its 
operation workers of equal skill. What is the immediate effect of the 
introduction of the machine on the output, the price of the product, and 
demand for, and the wages of, labor? Trace the ultimate effect of the 
introduction of the machine upon wages in the trade under considera- 
tion, and throughout all trades. 

10. In case some new process is discovered of performing some particu- 
lar task, — like that of the baker, — with the labor of fewer hands, both 
absolutely and relatively (even when account is taken of those who may 
be newly employed in making the apparatus required by the new process) , 
what fundamental reasons are there, apart from growth in population, 
or change of residence, for thinking, first, that the laborers displaced by 
the new process will eventually find another field of employment ; second, 
that in another field of employment there will be an effective demand 
for the laborers displaced? 

11. An automatic telephone exchange system costing $200,000 sup- 
plants 100 girl operators previously required in the exchange. If this 
is a typical instance of the cost of introducing the automatic system, and 
if its introduction saves the company $20,000 annually but is followed by 
no extension in the demand for telephone service, will the diminution 
in employment in telephone exchanges be offset by the increase in employ- 
ment required to install the new system, or in any other way? 

12. What concern have the poor in the abundance of capital? The 
rich in the abundance of labor ? 



CHAPTER 37 

WASTE AND LUXURY 

Refeeences. 

Lapp and Mote, Learning to earn, ch. VIII. 
Laveleye, E. L., Luxury (trans., 1891). 
Wagner, Charles, The simple life. 

Questions. 

1. If all the day-laborers should agree to work with one hand tied 
behind them, would their wages go up or go down? Would it be good 
or bad for the whole class of laborers? 

■ 2. Why do workmen in putting up a building often carelessly or 
intentionally break glass and waste materials? Does their destruction 
of materials benefit labor? 

3. If the government expends $1,000,000 in dredging a river which 



AND EXERCISES IX ECONOMICS 45 

will never be of essential service to navigation, what would you say of 
the defense of the expenditure, (a) on the ground that it " makes work " 
and creates a greater demand for labor ; ( b ) on the ground that " it puts 
money into circulation." Discuss each portion carefully. 

4. Was the great Chicago fire, which led to the rebuilding of the city, 
a good thing economically? 

5. An ostentatious display of dress and jewels at a social function 
was justified on the ground that the extravagance gave employment and 
put money into circulation. Criticize. 

6. Do you feel a sense of injustice when you read of a millionaires' 
ball if you are not a millionaire? 

7. Can you excuse the sense of injustice felt by the hungry man when 
he sees you wear patent-leatlier shoes and kid gloves? 

8. Is the spendthrift the best friend of labor ? 

9. Wines, balls, pensions are said to be good because they put money 
into circulation. Criticize. 

10. What would be the effect in the long run upon wages, employment 
and social welfare if the wealthy should gradually cease to expend their 
income upon costly food, clothing and amusements? 



CHAPTER 38 
ABSTINENCE AND PRODUCTION 

Questions. 

1. The savings of the people of the United States are nearly a billion 
dollars a year. What and where are they ? 

2. Distinguish between hoarding and saving. 

3. Can people live on the future, consuming in advance of production? 
How is it with the nation in time of war ? 

4. W^ill j'ou save more or less if the rate of interest falls ? 

5. What would be some of the first effects on production if interest 
on money loans fell to one-half its present rate? 

6. What would be the effect on interest, land rent, and wages of a great 
increase of national saving? 



CHAPTER 39 

VALUE THEORY AND SOCIAL WELFARE 

References. 

Adams and Sumner, ch. XIII. 

Gladden, Washington, Tools and the Man. 1893. 



46 MANUAL OF REFERENCES 

Hobson, J. A., Work and wealth: a human valuation. 1914. 
Figoii, A. v., Wealth and welfare. 1912. 

Questions. 

1. What different ideas does the expression " distribution of wealth " 
suggest to you? 

2. How can a yard of cloth be said to be distributed to the labor and 
capital producing it? 

3. If, through greater eflieiency of labor, wealth increases, which share 
beneiits ? 

4. If by the completion of a new railroad there are rendered accessible 
lands hitherto unused whose productive capacity exceeds that of a part 
of the land already under cultivation, (a) What effect will the accessi- 
bility of the new land have upon wages and land rent? (b) Will both, 
either, or neither increase absolutely ? ( c ) Will wages and land rent bear 
the same relative magnitude to each other? Give reasons for your 
opinion in each case. 

5. What would be the efiect on wages, interest, and land rent of a 
sudden addition of rich land to the country? 

6. Are high wages and high interest seen to go together? Give such 
examples as you think of. 



END OF VOLUME I 



LIBRARY OF CONGRESS 



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